Cost improvement practices and trends in Europe

Thriving in uncertainty: Deloitte’s first biennial cost survey

December 2016

Overview

Global macroeconomic factors are having a major impact on cost management efforts at large European companies. The challenging economic environment has created a cost/growth paradox we call “thriving in uncertainty,” where companies are simultaneously pursuing the seemingly conflicting goals of aggressive cost improvement and aggressive growth. Deloitte’s first European biennial survey of cost management and cost improvement trends explores how companies are managing costs in this challenging environment. For details and practical insights on tackling the cost/growth paradox, download the full report - or read on for some highlights.

Our key findings

The top three strategic priorities are sales growth (30%), product profitability (28%), and cost reduction (28%), which add up to a cost management strategy that we call “save to grow”: using cost savings to fund growth activities.

Despite Europe’s relatively low cost targets (52% of respondents cite targets of less than 10%), cost program failure rates are high, with 57% of respondents indicating their cost programs failed to meet targets.

Brexit is causing major uncertainty for UK companies with 36% of UK respondents citing it as a top external risk vs. 0-10% for respondents from other European markets.

Looking ahead

To improve their cost management performance and achieve more aggressive targets, many companies may need to adopt a more strategic and transformational approach to cost reduction. Companies that stick to tactical cost actions and the status quo will likely continue to face implementation problems and high cost program failure rates.

Businesses in pursuit of strategic cost improvements have traditionally fallen into one of three categories: (1) distressed, (2) positioned for growth, or (3) growing steadily. However, today’s volatile and complex global business environment seems to be giving rise to a fourth category that we call “thriving in uncertainty” -- a scenario that straddles the line between “distressed” and “positioned for growth” and involves organisations simultaneously pursuing the seemingly conflicting goals of growth, cost improvement, and balance sheet management.

For the UK, macroeconomic factors seem to be pushing them toward greater uncertainty, requiring a playbook with value creation levers that may need to be more defensive in nature.

Deloitte expert viewpoint

What we are seeing in today’s environment is a situation called ‘thriving in uncertainty’ that combines the elements of the ‘distressed’ category we saw following the financial crisis and the ‘positioned for growth’ category that emerged in the years following. There is an element of real macro uncertainty as well as defensive stance of boards. This is leading to cost reduction emerging as a top strategic priority. Does the strategy of ‘thriving in uncertainty’ reflect a new and permanent state of cautious optimism? Or is it simply a by-product of today’s global macroeconomics–and ultimately just a temporary stepping-stone to one of the three traditional cost management categories? Only time will tell.

Key contact

Partner

Simon joined Deloitte in 2007 as a Partner and has over 25 years experience in defining and delivering cost reduction and asset management projects to clients in Europe, Asia, Africa and the United St... More

Director

Gillian is a Director who leads on Strategic Cost Transformation for the Consumer Business practice for Deloitte in the UK. She has over 15 years of consulting experience working with clients to shape... More

Deloitte LLP is the United Kingdom affiliate of Deloitte NSE LLP, a member firm of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”). DTTL and each of its member firms are legally separate and independent entities. DTTL and Deloitte NSE LLP do not provide services to clients. Please see About Deloitte to learn more about our global network of member firms.

Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 1 New Street Square, London EC4A 3HQ, United Kingdom.